Brazil sees record 9 pct economic growth in 1Q

BRADLEY BROOKS, Associated Press Writer

Brazil's economy grew by a record 9 percent in the first quarter on strong domestic demand, the government reported Tuesday, a surprisingly good result that prompted a revision of the 2010 growth forecast to 6.5 percent.

"It was more than I'd hoped for," Economy Minister Guido Mantega said. "It shows that the Brazilian economy had one of the best recoveries in the world. Only China has had growth of this magnitude."

Mantega said Latin America's largest economy "should see growth of 6 to 6.5 percent" this year, up from earlier predictions of 4.5 percent to 5.5 percent.

However analysts warned that the economy is beginning to overheat - which could spur the central bank to hike a key interest rate to avoid a spike in inflation.

"All growth above 5 percent is inflationary," Carlos Safatle, president of the Sao Paulo regional economic council, told the business newspaper Valor Economico. "As the expectation for this year is around 6.5 percent, the central bank is already acting."

The central bank committee that sets the interest rate meets Wednesday to consider whether to change the benchmark Selic rate, currently 9.5 percent. In April, the bank made its first rate hike in almost two years, increasing it by 0.75 percentage points. A similar increase is expected this week.

The latest report on Brazil's gross domestic product from the IBGE government statistics agency said the first-quarter expansion was the strongest recorded since it began using its present methodology in 1995.

The IGBE report indicated that annual growth ending in March was 2.4 percent. That figure includes two quarters of negative growth last year. Brazil was among the last nations to be hit by the global financial crisis, and one of the first to emerge from it.

Mantega said deft handling of fiscal and monetary policies, coupled with resilient demand from a growing middle class, is what guided the nation through the meltdown, which began in 2008 and continues to threaten nations such as Greece, Spain and Portugal.

The IGBE said industrial output jumped 14.6 percent in the first quarter compared with the same period last year. Services expanded by 5.9 percent, and the powerful agricultural sector grew 5.1 percent.

The report said those numbers point toward strong internal demand.

Brazil's government has also taken steps to stimulate the economy - keeping the interest rate at an all-time low until April, lowering bank reserve requirements, increasing government spending and sparking consumer spending by slashing taxes on new car purchases, among other incentives.

Mantega said the blistering pace is unlikely to be maintained since the first-quarter figures are compared to the first quarter of last year, when the nation was in the throes of the global crisis and the economy contracted 2.1 percent.